Dahlia Ltd v Four Millbank Nominees Ltd [1977] EWCA Civ 5 (24 November 1977)

A property seller offered to exchange contracts if the buyer attended with a signed contract and deposit cheque. The buyer complied, but the seller refused to proceed. The court held a binding unilateral contract existed, which the seller breached by revoking their offer.

Facts

The plaintiffs, Dahlia Ltd, negotiated to purchase properties from the first defendants, Four Millbank Nominees Ltd. The essential terms were agreed. The defendants’ solicitors wrote to the plaintiffs’ solicitors stating they were instructed to proceed. Crucially, the defendants’ representative orally informed the plaintiffs that if they attended the defendants’ office with a counterpart contract signed by them, along with a banker’s draft for the 10% deposit, before 10 a.m. on a specified day, the defendants would exchange contracts. The plaintiffs duly attended as requested, with the signed contract and the deposit, but the defendants refused to exchange, having decided to sell the properties to a third party (the second defendant) for a higher price.

Issues

The central legal issue was whether a binding contract existed between the parties at the point the defendants refused to exchange contracts. The court considered two main possibilities:

1. Whether a fully-fledged bilateral contract for the sale of land had been concluded by the plaintiffs’ act of attending with the required documents.
2. Alternatively, whether the defendants had made a unilateral offer (a ‘collateral contract’) to keep the main offer open and to exchange contracts if the plaintiffs fulfilled the specified conditions, which they could not revoke once the plaintiffs had embarked upon performance.

A further issue was whether section 40 of the Law of Property Act 1925, which required contracts for the sale of land to be in writing and signed, would prevent the plaintiffs from succeeding even if a collateral contract was found to exist.

Judgment

The Court of Appeal, in a unanimous decision, found in favour of Dahlia Ltd, reversing the lower court’s decision to strike out the claim. The leading judgment was delivered by Lord Justice Goff.

Lord Justice Goff

Goff LJ analysed the situation primarily through the lens of a unilateral contract. He concluded that the defendants had made a clear offer: if the plaintiffs performed the specific acts of preparing the engrossed contract, having it signed, and attending the defendants’ office with it and the deposit, the defendants would complete the transaction. The defendants could not revoke this offer once the plaintiffs had embarked on performance.

He explained the underlying principle, resolving a long-standing debate on the revocability of unilateral offers:

Whilst I think the true view of a unilateral contract must be that the offeror is entitled to require full performance of the condition which he has imposed and short of that he is not bound, that must be subject to one important qualification, which is that there must be an implied obligation on the part of the offeror not to prevent the condition becoming satisfied, which obligation it seems to me must arise as soon as the offeree starts to perform. Until then the offeror can revoke the whole thing, but once the offeree has embarked on performance it is too late for the offeror to revoke his offer.

Goff LJ held that Dahlia had ’embarked on performance’ by the time they arrived at the defendants’ office with all the required documentation. The defendants’ refusal to exchange was therefore a breach of this implied collateral contract not to revoke. He reasoned that this collateral contract was not for the disposition of land itself, but a contract to enter into another contract, and therefore a claim for damages for its breach was not barred by section 40 of the Law of Property Act 1925.

Lord Justice Megaw and Lord Justice Buckley

Both Megaw LJ and Buckley LJ delivered concurring judgments, agreeing with the reasoning and conclusion of Goff LJ. They affirmed that the circumstances gave rise to a unilateral contract which the defendants had breached.

Implications

The case is a landmark authority on the nature of unilateral contracts in English law. It firmly establishes the principle, following from Errington v Errington & Woods [1952], that an offeror of a unilateral contract is subject to an implied obligation not to revoke the offer once the offeree has begun performance of the requested act. This provides protection for an offeree who has expended time and resources in reliance on the offer. The decision is particularly significant in the context of property transactions, where it provides a potential remedy against a seller who withdraws from an agreed sale at the very last moment before the formal exchange of contracts. It illustrates the court’s willingness to imply a collateral contract to achieve commercial justice and prevent an offeror from unfairly resiling from a promise.

Verdict: The appeal was allowed.

Source: Dahlia Ltd v Four Millbank Nominees Ltd & Anor [1977] EWCA Civ 5 (24 November 1977)